Moneycontrol Pro Panorama | Realty slumps even as luxury housing booms

The real estate sector’s underperformance has been evident in the stock market

Dear Reader,

India's residential real estate sector experienced a turbulent 2025, marked by declining sales volumes and a pronounced shift toward luxury housing, even as overall transaction values continued to climb. The year's performance reflected a complex interplay of economic pressures, changing buyer preferences, and strategic recalibrations by developers and investors alike.

Housing sales across India's top seven cities fell 14 percent to approximately 395,625 units in 2025, down from 459,645 units the previous year, according to ANAROCK Research. Despite this volume decline, the total sales value rose 6 percent to over Rs 6 lakh crore, up from Rs 5.68 lakh crore in 2024. The reason behind this paradox is a fundamental transformation in the market—buyers were increasingly gravitating toward high-value properties, even as affordability constraints kept many potential homeowners on the sidelines.

Several factors contributed to the sales slowdown. Hardening property prices, coupled with widespread layoffs in the IT sector, and poor performance of equity markets, all contributed to dampened buyer sentiment and purchasing power. Geopolitical uncertainties added another layer of caution, making large financial commitments less appealing. Average residential prices rose 8 percent annually across major cities, with the National Capital Region witnessing a steep 23 percent increase, largely driven by an influx of premium supply.

The western markets of Greater Mumbai and Pune dominated sales activity, together accounting for 49 percent of total transactions. Mumbai led with approximately 127,875 units sold, though this represented an 18 percent year-on-year decline. Pune followed with 65,135 units, marking a 20 percent drop. Meanwhile, new launches increased marginally by 2 percent to 419,170 units, with Mumbai and Bengaluru contributing nearly half of this new supply.

The luxury housing segment emerged as the standout performer in 2025. Properties priced above Rs 2.5 crore accounted for 21 percent of new supply, up from 18 percent in 2024. This trend has continued since the post-pandemic preference for larger homes from established developers.

Conversely, affordable housing faced a severe crisis. Sales of units priced under Rs 50 lakh plummeted 17 percent year-on-year, while new launches dropped 28 percent. The segment's share of total sales fell to just 18-19 percent, down from 38 percent in 2019.

Developers increasingly abandoned this segment for higher-margin luxury projects, which offer returns of 30 percent or more compared to the 10-15 percent margins in affordable housing. Despite government initiatives like the Pradhan Mantri Awas Yojana and GST reductions, experts warn that the affordable housing deficit could reach 30 million units by 2030 without sustained policy intervention and revised pricing definitions that reflect current market realities.

Private equity investment mirrored the broader market caution, declining 29 percent to $3.5 billion in 2025. Office properties continued to dominate, attracting 58 percent of total inflows at approximately $2 billion, while residential assets garnered 17 percent through structured, credit-led instruments rather than pure equity bets.

However, Knight Frank India projects a potential 28 percent rebound to $4.4 billion in 2026, driven by government capital expenditure, currency stability, and moderating interest rates, offering hope for a gradual recovery in the sector.

The real estate sector’s underperformance has been evident in the stock market, with realty stocks trailing the benchmark index by 15 percent in 2025. Without a resurgence in sales volumes, the sector is likely to remain out of favour among investors, though the upcoming budget may offer measures to boost market sentiment.

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